Oil up slightly on Nigerian attack, Iran worries (UPDATED: 9:52 a.m.)

Monday

Jul 28, 2008 at 6:41 AMJul 28, 2008 at 6:53 AM

NEW YORK (AP) — Oil prices inched higher today, hovering just below $124 a barrel after militants sabotaged oil pipelines in Nigeria and Iran claimed that it had doubled the size of its nuclear program.

NEW YORK (AP) — Oil prices inched higher today, hovering just below $124 a barrel after militants sabotaged oil pipelines in Nigeria and Iran claimed that it had doubled the size of its nuclear program.

Worries about slowing U.S. demand for energy once limited the gains.

Light, sweet crude for September delivery rose 44 cents to $123.70 a barrel in early afternoon trading on the New York Mercantile Exchange. The contract fell $2.23 to settle at $123.26 a barrel on Friday — oil’s lowest point in weeks — as investors grappled with whether record prices have put a serious dent in demand.

In another sign that Americans’ thirst for fuel is waning, the average price for regular gasoline fell on average by just over a penny to $3.958 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.

Oil rallied above $125 a barrel early today on more worries over Iran’s nuclear program. Iranian President Mahmoud Ahmadinejad announced Saturday that Iran now has 6,000 centrifuges — a figure that doubled past estimates and ratcheted up tension in the standoff between Western countries and OPEC’s second-largest producer.

“The comments by the Iranian president are a reminder that the Iranian situation remains fluid,” said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.

However, Ahmadinejad struck a lighter tone in comments aired today, telling NBC that Iran would be open to a “new approach” from the U.S. in seeking a peaceful resolution to his country’s nuclear ambitions. He added that current oil prices were “not realistic,” saying: “Some powers are manipulating the prices inside the market.” He did not elaborate.

Ahmadinejad’s comments were viewed as conciliatory among oil traders and helped take monetum out of crude’s earlier rally, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

“We pumped a little geopolitical risk premium into the pricing structure and then we took it right back,” said Ritterbusch.

Meanwhile, an overnight attack on Nigerian oil installations boosted prices. The country’s main militant group, The Movement for the Emancipation of the Niger Delta, attacked two oil pipelines in southern Rivers State believed to be owned by a unit of Royal Dutch Shell PLC.

Shell said a pipeline had been damaged in attacks and that some crude production had been shut down to prevent an oil spill. No other details were given.

The Movement for the Emancipation of the Niger Delta says it’s acting to force the Nigerian federal government to send more oil-industry funds to the southern region, which produces all of Nigeria’s crude oil but remains impoverished after decades of corrupt and wasteful governance.

Such attacks in the past were enough to send oil prices surging, but today’s modest gains suggested worries about rapidly falling demand for energy outweighed traders concerns’ about a possible supply disruption.

“What’s amazing about this attack is that the market seems to be blowing it off. It shows how much the market sentiment has changed when bullish news goes largely unnoticed,” said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

In another sign traders think oil prices may have peaked, the U.S. Commodity Futures Trading Commission said that for the first time in 17 months, a majority of large commodities traders are shorting oil prices — or betting that prices will fall.

The marked shift in investor sentiment is a reflection that “people are realizing that oil demand is falling like a rock and that prices at this level are unsustainable,” Flynn said.

Analysts said key data to be released this week would provide clues about how the U.S. economy would fare during the second half of the year and in turn help determine which way the oil market would move. Among the data the market will be watching are gross domestic product for the second quarter, to be released Thursday, as well as July employment and auto sales, both on Friday.

The magnitude of the sell-off over the past two weeks is stark. Crude has fallen in seven of the last nine sessions, and is down more than 16 percent from its peak above $147 a barrel earlier this month. Still, prices remain about 65 percent higher than at this time last year.